1. Field of the Invention
The present invention relates to a method and system for providing an annuity with periodic interest rate adjustments; and more particularly, to a data processing method for administering an annuity product for an annuitant, the annuity product having a contract value and a guaranteed minimum interest rate.
2. Description of the Prior Art
An immediate annuity is typically used to provide an income stream within a predetermined length of time from the date the premium is received. The amount of income can be either fixed or variable in nature and typically, these products do not provide an account value. A deferred annuity is typically used to provide accumulation and, potentially, a future stream of annuity income. The deferred annuity comprises an accumulation period during which the account value will vary with the underlying investments and an annuitization period where the client purchases an immediate annuity with the account value available. Deferred and immediate annuities typically provide guaranteed income for life, which transfers some portion or all of the risk of outliving one's accumulated assets to the insurer.
One basis for distinguishing commonly available deferred annuities is whether the annuity is classified as a “fixed annuity” or a “variable annuity”.
In a fixed annuity, the insurer guarantees a fixed rate of interest applicable to each annuity deposit. Therefore, a fixed annuity is desirable for those seeking a “safe” investment. The guaranteed interest rate may apply for a specified period of time, often one year or more. Often, a rate guaranteed for more than one year is called a “multi-year guarantee”. The rate credited on a fixed annuity is reset periodically, moving in an amount and a direction that correlate the yields available on fixed-income investments available to the insurer.
With a variable annuity, the annuity contract owner bears the investment risk. The relevant life typically has a choice of funds in which he/she can direct where the annuity deposits will be invested. The various funds or sub-accounts may include stocks, bonds, money market instruments, mutual funds, and the like.
Variable annuity contracts typically provide a death benefit. Oftentimes, during the accumulation period this death benefit is related to the contract value. That is, if the sub-accounts backing the contract value have performed poorly, then the death benefit may be reduced to an insignificant amount. After annuitization, the death benefit can be a function of the remaining payments of the annuity at the time of the relevant life's death. Further, if the annuity contract does not provide a guarantee (discussed below), the contract will terminate when the contract value goes to zero or some other amount specified in the contract or rider.
Annuity contracts may also provide guarantees in several different variations. A Guaranteed Minimum Death Benefit (GMDB) is a guarantee that provides a minimum benefit at the death of the relevant life regardless of the performance of the underlying investments. A Guaranteed Minimum Income Benefit (GMIB) is a guarantee that will provide a specified income amount at the time the contract is annuitized. The income payment will be dependent on previously stated details set out in the contract. A Guaranteed Minimum Accumulation Benefit (GMAB) is a benefit that guarantees a specified contract value at a certain date in the future, even if actual investment performance of the contract is less than the guaranteed amount. A Guaranteed Minimum Withdrawal Benefit (GMWB) is a guarantee of income for a specified period of time, and in some versions, the income stream is guaranteed for life without requiring annuitization as in the guaranteed minimum income benefit. However, this guarantee will automatically annuitize the contract if the contract value is reduced to zero or some other amount specified in the contract or rider.
Typically, a fixed annuity will guarantee a predetermined interest rate for a certain number of years. This guaranteed interest rate is usually determined by the company issuing the annuity product based on currently prevailing interest rates in the economy. Many annuity contract holders later become dissatisfied with their guaranteed interest rate if the prevailing interest rates in the economy suddenly increase because they feel as though they are locked into a poor investment. Many economists track inflation statistics. Inflation is defined as a persistent, substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency. Typically, when the inflation rate of an economy is high, the prevailing market interest rates in the economy also increase.
Most annuity products in the prior art typically contain provisions for periodically increasing the interest rate in response to sudden increases in the prevailing interest rates in the economy. However, none of the prior art products employ a method and system for providing an annuity with periodic interest rate adjustments, wherein the method utilizes one or more reference values that are a very predictable indication of prevailing market interest rates.
Many financial products and systems have been disclosed. These include financial products with the following features: having a guaranteed rate of return for a guarantee period and having upward adjustments to the interest rate if there is a corresponding increase in a specified referenced rate (i.e., a United States Treasury rate); an annuity valuation product that applies different interest rates over different time periods that reflect changes in increasing, declining and steady interest rate environments; and administering a plan with guaranteed lifetime income. Each one of these prior art references suffers from at least the following disadvantage(s): these financial products do not provide for an annuity with periodic interest rate adjustments using reference values that can predictably indicate the prevailing market interest rates.
Accordingly, there remains a need in the art for a method and system for administering an annuity contract for a relevant life with periodic interest rate adjustments. In addition, there is a need for a data processing method wherein the annuity contract utilizes one or more reference values that are a very predictable indication of prevailing market interest rates, such as the consumer price index and short and long term Treasury notes.